Justice Committee evidence session: The Work of the Serious Fraud Office (SFO) Pre-hearing memorandum from the Serious Fraud Office 1 Summary 1.1 This memorandum provides high-level and summary information about the role and history of the SFO, its caseload and recent results, HR and finances. 1.2 The SFO commenced operations in 1988. The current Director, David Green CB QC took up office in April 2012. His term of office has been extended and will end on 20 April 2018. 1.3 The SFO is an independent Government department. The Director of the SFO is appointed by, and superintended by, the Attorney General (Jeremy Wright QC MP). 1.4 The Director may investigate any suspected offence which appears to him on reasonable grounds to involve serious or complex fraud, which includes bribery and corruption. He, like the Director of Public Prosecutions, acts independently of government. 1.5 David Green has re-focused the SFO on its original purpose. The SFO is designed to tackle the top-most tier of fraud, bribery and corruption cases with an emphasis on conduct that harms the UK s reputation as a safe place to do business. 1.6 Recent results include the first convictions for rate-rigging, the UK s first Deferred Prosecution Agreements, and the UK s first convictions under section 7 of the Bribery Act. 2 Cases 2.1 The Criminal Justice Act 1987 sets out that The Director may investigate any suspected offence which appears to him on reasonable grounds to involve serious or complex fraud. 2.2 The SFO initially had a financial threshold for its cases of 1million, which was later increased to 5million. However, such thresholds soon became outdated and the current Director has published a Statement of Principle to make clear the main factors he takes into account when considering a case. These are: whether the apparent criminality undermines UK PLC commercial or financial interests in general and in the City of London in particular, whether the actual or potential financial loss involved is high, whether actual or potential economic harm is significant, whether there is a significant public interest element, and whether there is new species of fraud. 1
2.3 The type of investigation that the SFO takes on is best illustrated by considering a sample of some of its live cases. These include cases relating to: 3 Roskill Model manipulation of the LIBOR rate (London Interbank Offered Rate); the re-capitalisation deal by Barclays Bank with Qatar at the height of the financial crisis; alleged bribes paid for the award of contracts relating to Rolls-Royce; alleged false accounting relating to Tesco; alleged bribery of public officials relating to Alstom; alleged bribes paid to induce customer orders relating to GlaxoSmithKline; the way in which G4S/Serco secured contractual payments from the MoJ; the relationship between GPT and the Saudi National Guard; alleged fraud, bribery and corruption at Airbus; and the activities of Unaoil, its offices, employees and agents. 3.1 SFO case teams are multidisciplinary. A case team is led by a case controller who oversees lawyers, investigators, forensic accountants, and other specialists, as well as instructing counsel from the outset. This structure is known as the Roskill model after the 1985 Fraud Trials Committee Report Chaired by Lord Roskill. 3.2 Arguments in favour of the model are even stronger now than they were in the 1980s. For example, the Committee s report said that in large-scale or complex fraud cases, the task facing investigators is formidable [ ] there is the problem of scale: there may be thousands of documents to be located, put in order, and understood. Problems such as this have been multiplied by technology and the ever-increasing complexity and internationality of business and financial transactions. The SFO s Libor investigation alone holds 2.6 terabytes of data, equivalent to about 260 million pages of emails. 3.3 The key strengths of the Roskill model are the focus, consistency, legal scrutiny and expertise that is brought to bear on cases from start to finish. The complexity of these cases means they require legal input from the start. Similarly the expertise of investigators is available throughout the prosecution phase there is no hand-off, no loss of the knowledge built up over the necessarily long investigation phase. The intensity of the collaboration required means the single, multidisciplinary unit is the best and most effective approach. 4 Recent results 4.1 Results during the last two years include: Five convictions for rate rigging offences relating to LIBOR including the first contested conviction in this country. The case has nine strands and is continuing. Our first conviction of a corporate for offences involving bribery of foreign officials (Smith & Ouzman Ltd.). The UK s first two Deferred Prosecution Agreements (Standard Bank and XYZ - unnamed due to court reporting restrictions). The first agreement included a financial penalty of $25m; the second resulted in financial orders of 6.6m. The first guilty plea by a corporate for an offence under section 7 of the Bribery Act (Sweett). 2
4.2 The SFO deals with a small number of cases so casework statistics can vary year on year. However, as a guide, in 2015-16, 3.39m of financial orders were obtained and 19.61m was received from orders obtained by the SFO, this was 11% of the total UK confiscation recoveries. 4.3 Over the four-year period 2012/13-2015/16, there were 49 defendants convicted out of 75, giving a defendant conviction rate of 65%. In terms of cases, 25 were successful out of 31. This gives a case conviction rate of 81% (these statistics do not include the recent convictions in the Libor and other cases during the current financial year). 5 Powers 5.1 The Criminal Justice Act sets out that the Director may investigate any suspected offence which appears to him on reasonable grounds to involve serious or complex fraud and to institute, and have conduct of, any related criminal proceedings. 5.2 Under section 2 of the Act, the SFO can compel individuals to produce information or answer questions and, in certain circumstances, to seek a warrant to search premises. 5.3 Most of the powers under section 2 are available only once the Director has opened an investigation. The Criminal Justice and Immigration Act 2008 provided for the section 2 powers to be also exercisable for the purpose of enabling [the Director] to determine whether to start an investigation in relation to bribery or corruption of foreign officials, but not other fraud offences. 5.4 Since February 2014, under the Crime and Courts Act 2013, the Director of the SFO (and the Director of Public Prosecutions) may enter into Deferred Prosecution Agreements (DPAs). 5.5 A UK DPA is an agreement reached between a prosecutor and an organisation which could be prosecuted, under the supervision of a judge. The agreement allows a prosecution to be suspended for a defined period provided the organisation meets certain specified conditions. The key features of DPAs are: They enable a corporate body to make full reparation for criminal behaviour without the collateral damage of a conviction (for example sanctions or reputational damage that could put the company out of business and destroy the jobs and investments of innocent people, such as shareholders, suppliers and employees). They are concluded under the supervision of a judge, who must be convinced that the DPA is in the interests of justice and that the terms are fair, reasonable and proportionate They avoid lengthy and costly trials They are transparent, public events The SFO has agreed the UK s first two DPAs. 3
5.6 At the recent Anti-Corruption Summit it was announced that the government will run a consultation on extending the "failure to prevent" model in section 7 of the Bribery Act (2010) to other corporate crime. 5.7 The SFO is superintended by the Attorney General and is accountable to Parliament through him. It is also subject to inspection by HM Crown Prosecution Service Inspectorate (HMCPSI). 6 HR & Finances 6.1 The SFO is funded with a mix of a core budget and additional resources. HM Treasury has agreed to blockbuster funding where any individual case is expected to cost more than a certain percentage of the SFO s core budget. It is a workable mechanism which allows the SFO to respond flexibly to a demand-led workload. 6.2 The fluctuations in annual funding levels demonstrate the changes in cases taken on by the SFO over the last eight years with a number of very large cases being taken on since April 2012. This has in turn resulted in a need for significant blockbuster funding from the Reserve in addition to the core budget. 6.3 Like all Government Departments, the core funding for the Serious Fraud Office is set as part of the spending review process and approved by Parliament through the Main Estimates. Reserve funding is approved by Parliament through the Supplementary Estimates following agreement of that year s requirements with HM Treasury. 6.4 The average number of full-time equivalent employees in 2015-16 was 369. As at 31st March 2016 there were 403 permanent and fixed term staff. At 31st March 2016, 110 temporary staff filled vacancies and provided additional support on blockbuster cases. 7 International and cross-government work 7.1 The SFO is widely regarded as a key enforcement agency globally in its area, and as an international example of good practice. NGOs and overseas agencies advocate an independent agency with the single priority of combating serious fraud, bribery and corruption, rather than an agency where this is one amongst competing priorities. Transparency International has recognised the UK as one of four (out of 41) active enforcers of the OECD s Anti-Bribery Convention with the SFO playing a leading role in this regard. 7.2 The UK has signed up to international agreements (for instance the OECD convention and the United Nations Convention against Corruption) which include a requirement for states to establish an independent agency to fight fraud and corruption. The SFO is that agency. 7.3 The SFO has excellent relations with many of its overseas partners including the US Department of Justice, the Singapore Attorney General s Chambers and Corrupt 4
Practices Investigation Bureau and others around the world. These relationships are becoming increasingly important as the criminality we deal with is becoming itself increasingly cross-jurisdictional. Constructive, cooperative working across borders is key to progressing our own cases and achieving a rational, coordinated approach to those where several countries may have an interest. 7.4 We work collaboratively with our superintending department, the AGO, and other UK Government Departments including the Home Office, Cabinet Office, Ministry of Justice, the Foreign and Commonwealth Office, and Department for International Development. 7.5 The SFO played an active role in the Anti-Corruption Summit in May this year led by the Prime Minister, and also President Hollande s International Anti-Corruption Practitioner Conference in Paris in June. The SFO lead, or acted as a panellist, on various sessions highlighting our role in tackling corruption. 7.6 We are engaged with the Cabinet Office and the Home Office on the new UK Anti- Corruption Strategy, which was a commitment from the London Anti-Corruption Summit and the UK s Third Open Government Partnership National Action Plan. 7.7 We work closely with the National Crime Agency (NCA) and other domestic law enforcement and prosecution agencies, including City of London Police, the Crown Prosecution Service and the Financial Conduct Authority (FCA). 7.8 The SFO s General Counsel chairs the Bribery, Corruption and Financial Sanctions Evasion Threat Group on behalf of the NCA and as part of the government s strategic governance structure to tackle serious, organised crime. 7.9 The SFO is a member of the Panama Papers Task Force, which was announced by the former PM on 10 April 2016. The SFO is also a founding member of the Joint Financial Analytical Centre (JFAC), a key part of the Panama Papers Taskforce, launched in July 2016, with the NCA, HMRC and FCA. The SFO is also a member of Project Bloom, set up by the NCA to tackle pension s scams. 7.10 Almost all of the SFO s cases have an international dimension and we frequently make mutual legal assistance (MLA) requests of overseas partners for evidence. These are vital tools in the fight against economic crime. MLA is a key mechanism to obtain or provide admissible evidence in support of prosecutions, here and abroad. 7.11 The SFO is also a competent authority to execute requests in cases of serious or complex fraud including bribery and corruption, from other countries that have been referred to us by the UKCA at the Home Office. These incoming requests are some of the most difficult and time consuming requests coming into the UK but it is vital that the SFO provides this assistance to overseas partners to ensure that serious economic criminals do not act with impunity by using foreign jurisdictions to escape prosecution or to hide their illicit assets. 5